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How to prepare for a shareholder dispute

On Behalf of | Jan 3, 2023 | Commercial Law and Litigation

Disputes are practically inevitable when you go into business with one or more partners. Many such disputes are small matters that you can resolve with minimal hassle, while others might escalate into large-scale conflicts that you must prepare for in advance in order to keep the business running.

Preparing for a potential shareholder dispute entails taking measures to mitigate the risk of a dispute in the first place, and to understand the best steps to take in case litigation becomes necessary.

Create a shareholder agreement

One of the primary purposes of a shareholder agreement is to address the conduct of business, and thus prevent possible disputes by outlining the rights and responsibilities of each co-owner. However, a legally-binding agreement also strengthens your position when another shareholder is in the wrong. This form of contract provides clear terms by which each partner must abide, therefore facilitating a favorable outcome for you if you decide to pursue litigation against a party that is irrefutably guilty of violating those terms.

Collect and preserve evidence

Whatever side you fall on in a dispute, collecting evidence is a necessity. Thorough documentation can protect you against harmful accusations or serve as proof of another party’s wrongdoings. Your ability to organize and preserve evidence can greatly help your case if the matter goes to court.

Drafting a detailed shareholder agreement is the most fundamental action you can take to prepare for a possible dispute. Beyond that, it is important to treat a dispute of any magnitude as if it may ultimately result in litigation and document relevant information accordingly.